Why OfficeMax and Office Depot are Good Bets This Year
Amanda is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
OfficeMax (NYSE: OMX) and Office Depot (NYSE: ODP) have seen their fortunes drop like a lead paperweight over the past several years. The office supply behemoths suffered from consumer belt-tightening during the recent recession, of course, just like other big-box stores. They took an additional hit, however, from the contraction of the small business sector, which experienced a drop in revenue as well as difficulty securing loans during the economic meltdown. Finally, though, things appear to be looking up for these two retailers.
The past year was especially unkind to these companies, with stock value plunges of approximately 60% for Office Depot and 75% for OfficeMax. Lately, though, there have been bits of good news. Barclay’s recently upgraded the ratings of both, from Negative to Neutral--not great, but a start. Zacks noted in an article late last year that OfficeMax’s efforts to re-invent itself are starting to show results. Also, a recent segment of Nightly Business Report profiled Office Depot, which has also been rebooting its business style. One thing that the recession has taught these retail giants is that bigger is not always better.
Both OfficeMax and Office Depot have downsized stores, either renting out portions of existing big-box locations or opening smaller, more intimate outlets in urban centers. Kevin Peters, Office Depot president, notes that not only does this reduce operating costs for the company, but it has improved the company’s bottom line substantially. While these smaller stores stock only half of the products of the larger locations, they are delivering 90% of the sales by catering to consumers who want to quickly locate what they need--and leave. This trend began early last year, and other huge retailers like Best Buy, Old Navy and even Target are also jumping on the bandwagon.
The bright spots recently spotted on the economic horizon have been helping the office retailers, too. Small businesses are starting to hum again; building permits are up along with the uptick in housing starts and remodeling projects, and the employment picture is looking better--all the things that affect an office supply store’s bottom line, according to Peters.
Not convinced yet? Well, here’s another vote of confidence: insiders have been buying up stock in both of these companies for well nigh six months now. Not only that, but big guns like Morgan Stanley, Alden Global Capital and public employees’ pension funds have substantially increased their holdings in these two companies. It looks like taking a chance on these two office supply giants might just be one of the best investor moves of the new year.
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